India’s economy may shrink sharply in FY21 but here’s why GDP growth is likely to skyrocket in next fiscal

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June 18, 2020 2:50 PM

Even as lockdowns are slowly eased and select economic activities have restarted in a new normal condition, economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic.

economic activity, economic growth, GDP, gross domestic product, GDP growth, economic revival, economy, ADB bank, fitch ratingsThe coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high public-debt burden.

Asian Development Bank (ADB) today said that India’s economy may contract by 4 per cent in the current fiscal year FY 2020-21. ADB cited the global health emergency created by the coronavirus pandemic behind the forecast of contraction in the country’s economy. It further said that the pandemic may see multiple waves of outbreaks in the coming period and thus the possibility of high sovereign debt and financial crises can not be ruled out. In another forecast, Fitch Ratings has also expected India’s economic activity to contract by 5 per cent in the current fiscal. Fitch Ratings attributed strict lockdown measures imposed since March 25 for the fall in the economic activity.

The coronavirus pandemic has significantly weakened India’s growth outlook for this year and exposed the challenges associated with a high public-debt burden and the rebound will mainly be driven by a low-base effect, Fitch Ratings said in a report. Given the low-base effect, it has forecasted India’s GDP to grow by 9.5 per cent in the next fiscal. However, the Asian Development Outlook said that India’s GDP may grow at a pace of 5 per cent in FY2021-22.

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Even as lockdowns are slowly eased and select economic activities have restarted in a new normal condition, economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic this year, said ADB Chief Economist Yasuyuki Sawada. Sawada further said that the higher growth outlook in the next fiscal is mainly due to weak numbers this year, and this will not be a V-shaped recovery. The ADB Chief Economist also suggested the governments to undertake policy measures to reduce the adverse effect of coronavirus and ensure that no further waves of outbreaks occur.

Meanwhile, after Moody’s downgraded India’s sovereign rating to Baa3 and threatened that it may further downgrade it to the junk status if the economy doesn’t revive, Fitch Ratings today announced to downgrade India’s outlook to ‘negative’ from ‘stable’, stating that the coronavirus pandemic has significantly weakened the country’s growth prospects for the year and exposed the challenges associated with a high public-debt burden.

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